Each UK SME was burdened with an average trade debt of £1.3mduring the last financial year, suggesting that despite the economic upturn, the strain on Britain’s smallest businesses remains severe.

Micro-SMEs with 1-9 staff and a turnover of less than £2m were proportionately the hardest hit, with each contending with £68,000 worth of trade debt and 12 percent in severe debt trouble. The findings, by online commercial debt recovery law firm Debt Guard Solicitors, were based on account details submitted to Companies House by over 9,100 SMEs. Stifling hopes of a top-down economic recovery, the overall indebtedness of the UK SME market reached £6.3tn in 2013/14, with late payment a major contributory factor.

Trade debt stands for money owed to a business – including current invoices and overdue payments – for goods and services supplied to customers throughout a financial year. A key research finding, according to Debt Guard, was that 12 percent of UK micro-businesses had dangerously high trade debt levels that reached one third of annual turnover. In contrast, just 5 percent of larger SMEs were in a similar risky financial situation. Of all these high risk firms, 44 percent are located in London. Highlighting the scale of the financial squeeze on Britain’s most vulnerable businesses, micro-SMEs each averaged £68,000 worth of trade debt, equating to 19 percent of turnover. Although larger SMEs averaged a higher trade debt of £2.5m, this was at a more manageable 15 percent of turnover.

 Mark Burgess, Chief Operating Officer at Debt Guard Solicitors, said: “This research highlights there is a highly varied national trade debt picture emerging within the SME marketplace, created by unpaid and outstanding invoices. In the past, SMEs have often been lumped together when it comes to debt management, but it is clear that micro-SMEs in particular need much greater support in this respect. “As the backbone of the UK economy, many of these micro-firms are suffering from big trade debt issues with the threat of closure a real danger. Our message to all SMEs in this position is, ‘don’t write off your debt’, look at legal ways to professionally recover it as, by improving credit flow, this will help put your business on a more stable financial footing.” The average time it took for SMEs to receive payment from customers, known as debtor days, was 63 days for micro-SMEs, 47 days for small companies and 40 days for medium-sized companies. This is beyond the typical 30-day agreements and draws attention to the problem of late payment, particularly for Micro-SMEs.

 Debt Guard Solicitors, part of Ascent Performance Group, is a customer-controlled internet only debt recovery legal service targeted at the SME marketplace. Compared to alternative debt collection agencies, there is no registration fee or hidden charges, no commission on recovered debt, and no expensive outsourcing of legal services.

Breakdown of micro-SMEs debt data
In 2013/14, micro-SMEs, characterised as businesses with just 1-9 staff and a turnover less than £2m, each contended with an average trade debt of £68,000, comprising 19 percent of turnover. The worst proportionately affected regions were London, the North East and Yorkshire. Businesses in these areas were on average nearly £100,000 in trade debt, accounting for a quarter of business turnover.

Breakdown of small companies debt data
In 2013/14, small companies, characterised as a business with 10-49 employees and a turnover between £2m – £10m, each had an average trade debt of £936,000.  This accounted for 17 percent of average turnover. The top debt hotspots were the North West, North East and East Midlands, with businesses in these regions having to each contend with an average trade debt of approximately £1m.

Breakdown of medium-sized companies debt data
In 2013/14, medium-sized companies, characterised as a business with 50-249 employees and a turnover between £10m – £100m, as expected, had the highest levels of SME trade debt averaging £3.7m each. This accounted for, on average, 13 percent of turnover. Compared to 2012, debt levels were actually slightly lower (£0.3m less), but higher than 2009 records – highlighting the unpredictable nature of trade debt for these larger companies. London, the South East and Scotland were the worst affected regions, with London SMEs on average £4.7m in trade debt, accounting for 26 percent of turnover.